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The $2.25 billion joint venture between US asset manager Ares and AMP Capital for AMP’s private markets business undervalues it, and the thought of AMP agreeing to the deal “beggars belief”, according to some market watchers.
Analysts at Macquarie said the Ares deal – under which Ares would buy 60% of AMP’s private markets business for $1.35 billion – represents a 25% discount to the business’ market value, according to a report by The Australian Financial Review.
“On our numbers, we do not see how AMP could agree to the deal in the form disclosed to the market,” Macquarie analysts said in a client note titled “Beggars belief.”
“Should the jewel in the AMP crown be sold at such a steep discount, it would signal an even worse underlying state of the Group (and AMP Capital division) than we are forecasting,” the note said.
Read more: AMP reaches deal with Ares Management
Macquarie’s valuation analysis estimated AMP Capital’s worth at $3.3 billion, with its private markets business accounting for $3 billion of that and its public markets business accounting for the remainder. Macquarie estimated that 91% of AMP Capital’s earnings before interest and tax was generated by the private markets business, and its valuation implied a 16.9 times trailing EBIT multiple. Only 12.7 times is being offered in the Ares deal, AFR reported.
“Threat of institutional mandate losses is likely the reason for the variance, but based upon publicly available data, still appears to be a very material discount (~25%),” Macquarie said. “The proposed JV with Ares for the Private Markets business appears undervalued. We would be surprised if the arrangement proceeded with the currently disclosed deal metrics.”
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